New Study Misrepresents The Gender Wealth Gap

A new study sponsored by Merril Lynch/Bank of America and Age Wave, a “thought leader on issues relating to an aging population,” claims a "wealth gap" between the genders exists which “can translate to a woman at retirement age having accumulated as much as $1,055,000 less than her male counterparts.”

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Far from going beyond the bottom line, the report barely touches the surface of women, wealth, and what can (and has been) done to protect the roles that caregivers – most often, but not always, women – play in society.

The “wealth gap” is the amount Age Wave calculates that men – who are assumed to constantly work, not be caregivers, and make the same as women – accumulate by age 65, while women – who all choose to marry men and take time off to raise children, care for parents, and care for their male spouses – have much less opportunity to accumulate assets.

In deciding how to calculate the time women take out of the workforce, Age Wave assumes a woman would have to take eight years out of the workforce in her 20’s or 30’s to care for children, four years in her 40’s and 50’s to care for a parent, and six years prior to retirement to care for a spouse (the report text says that she quits two years early, but the graph has it at age 59 versus the 65 for a man and so it seems they it as six years rather than two).

The above leads to earning “a cumulative $1,055,000 less than a man,” according to the report.

Of course, the assumptions above are questionable, and take only the case of a couple into account, but, what is striking to me is that this report ignores several truths even in this straightforward case:

Age Wave chooses to compare a married woman to a man. However, same-sex couples would have the same issue, and the comparison clearly would not be “women versus men.” Overall, this theme of “women versus men” tends to run through the paper and there seems to be a purposeful ignorance that the same phenomenon of a person taking time off would happen in same-sex couples or couples where the wife is the primary breadwinner and the man performs more of the caregiver role.

The "wealth gap" analysis stops at age 65 for the man and woman with the assumption being this is the year he would have retired. Age Wave says that women “retire two years earlier than planned to care for a spouse.” The woman here retires at age 59, and so the analysis seems to admit that a part of the ‘wealth gap’ is that women would not work for four of their highest earning years, which to many could account for 20-50% of the wage gap.

While I do not have data to support my beliefs, as an advisor to couples I find this assumption that people retire “earlier than expected to care for a spouse” to not be prevalent. Most retire when they feel they have accumulated enough to meet their goals and no longer find adequate satisfaction in work.

It is also important to note that if we assume the ages of the couple are relatively close, then if the woman is “caring for her spouse” (assumed from the analysis to be male) it would follow that the spouse is not working, and showing a widening gap is simply not logical.

By stopping at age 65, Age Wave ignores one of the major ways society protects our caregivers and lower income earners. Spousal and minimum Social Security benefits and inflation-adjusted Social Security benefits accrue far more to women with longer life expectancies than to men. According to the Center on Budget and Policy Priorities, data from the Social Security Administration shows women account for 54% of beneficiaries in their 60’s and 70’s, 60% of beneficiaries in their 80’s, and 70% of beneficiaries in their 90’s. This, combined with the fact that women account for 97% of survivorship benefits, and are the beneficiaries of payments based upon a spouse’s income and earnings, means that they have a significant advantage over men in retirement.

Also, when the male in a couple passes, the woman receives the higher payment, also reducing any discrepancy in income.

While recent changes have diminished Social Security planning strategies, couples still have opportunities to increase the long-term payments over single individuals, which benefits the woman. Divorcees also can make claims on their spouse’s record which is another factor that closes this income gap.

Wealth is joint wealth. Nowhere in the analysis is wealth considered to be joint wealth despite the fact it is calculated based on the example of a couple. By law, spouses have access to a significant portion of the higher earning spouse’s retirement assets and benefits (including payments from Social Security). By assuming that earnings equates to wealth in one spouse’s name Age Wave ignores the fact that a pension or accumulated $1,000,000 401(k) account, while legally in the name of the earner, has significant spousal protections and claims against it by the spouse.

Given all of the above, I see no wealth gap in the scenario that Age Wave provides. In fact, one may say that there are significant government benefit discrepancies that provide for women who are married.

By running the analysis only to age 65, presuming no future benefit discrepancies, and ignoring the legal claim on a spouse’s accumulated assets, the $1,055,000 serves as simply a way to market this study with a frighteningly large number.

To draw an example, consider college-aged students who deferred income potential by going to school from age 18 until 22. We see a wealth gap between college students and their peers who chose work over school of tens, if not hundreds, of thousands of dollars at that point in time.

To calculate the gap at the most divergent point commits the same fallacy as Age Wave’s calculation of a gender wealth gap. They ignore the full picture.

On the point of college-aged students, the number of men applying for and graduating with college degrees is decreasing today, suggesting the future wealth gap may show men having less in employer-sponsored retirement ‘wealth’ than women.

But, the analysis is even worse than that. Throughout the report, there is a reoccurring message that "men have more investment assets than women" and that this phenomenon is not equal and therefore not fair.

Since the main number is drawn from married couples where the woman takes time off work, I’ve kept my discussion to this case alone and addressed the fact that spouses have legal rights to retirement investment accounts above. Assuming single individuals have the same earning potential and lifestyle, one would believe that the rest of us have equal opportunity to address a gap in our own lives. And while I do not want to address the arguments against a wage gap here, the paper accepts as fact that one exists without discussion and it also is a contributing factor to a wealth gap for all women, all while noting that lifestyle choices harm income potential the most.

Another equally incorrect and not very subtle message throughout is a call for investment balances for women to be higher.

However, life choices do not always call for investing, and it is not a small matter that an investment firm sponsored this study and overlooked this fact. Lorna Sabbia, Bank of America/Merrill Lynch’s head of retirement and personal wealth solutions, is quoted as saying that financial solutions should “consider a client’s individual life journey, wants and needs.” Nothing could be truer prior to knowing whether someone should invest.

The assumption is that we should see this gap as an investment account balance problem. However, based upon the stated reasons for gaps – repeat need to time off from work to raise children, take care of aging parents, and finally to take care of partners – investing may be the entirely wrong solution. In fact, investing while having the potential to constantly draw down savings may increase the wealth gap as Age Wage illustrates it, as these periods do not allow for the time required to recover from market declines.

I submit that to the extent there is a wealth gap the solution is to recognize that investment account balances are not a sufficient way to see lifetime differences in financial flows. Perhaps by considering all of the benefits above, we may not even see a societal wealth gap, and by taking a broader view observe that society allows for individuals the opportunity to make choices that do not just lead to increased investment balances, but provide security and benefits nonetheless. By not linking Social Security and Medicare to gender and spousal (and ex-spousal) claims to assets, pensions, and Social Security, we have addressed this gap by providing safety nets for those who perform important care roles throughout their lives.

Perhaps there is a gap for certain segments or at certain points in our lives, but, calculating a gap in investment balances is the entirely wrong solution to the individual life choices women and men make.

Finally, I found the action steps to fixing any wealth gap to be vague and not likely to incentivize change – seek out advice, “acknowledge challenges, “turn longevity into an asset” – and that the solutions did not address actual policy reasons for higher employment-related investment and financial assets.

In my next article, I will post actual policy recommendations and thoughts on how to close inequalities in wealth accumulation among the genders that I hope those who believe deeply in this wealth gap concept will consider and support.